Compiled by Navin Sregantan
SIA ENGINEERING | BUY (UPGRADED)
TARGET PRICE: S$3.00
DEC 6 CLOSE: S$2.48
Maybank Kim Eng, Dec 6
SIA Engineering's share price, close to nine-year lows, has been on a decline for the past two and a half years due to growth concerns caused by structural changes in aviation maintenance, repair and overhaul (MRO).
SIA Engineering's quarterly results since have largely illustrated such growth challenges with operating metrics under pressure to the new demand norms. But we believe this adjustment process is close to its tail end.
Although structural changes to the MRO business have posed various challenges, we note that SIA Engineering's maintenance market share at its Singapore home base has held steady over the past three years and have scale advantages that we believe other operators will find hard to compete with.
The company has also been investing in new initiatives in areas of manufacturing technology for cabin interior parts and in-flight entertainment, among others.
The key risk to our thesis is twofold: that the new initiatives take beyond another 12 to 18 months to contribute and the adjustment process to lower MRO workload for new aircraft drags on longer than expected.
THAI BEVERAGE | BUY (MAINTAINED)
TARGET PRICE: S$0.75
DEC 6 CLOSE: S$0.60
KGI Securities, Dec 6
Year-on-year (y-o-y) Thai Beverage (ThaiBev) revenues grew 21 per cent to 229.7 billion baht, in line with our expectations while net profit declined 40 per cent to 20.7 billion baht (S$864 million), below our expectations of 23. 1 billion baht.
Y-o-y, sales volume for its beer and spirits dropped as operating and financing costs increased due to business acquisitions in FY2018.
We understand from management that the decline in alcohol volumes continues to be driven by effects from the excise tax hike and slow income growth among the lower income consumers. For FY2019, management expects the upcoming elections to drive a rebound in alcohol demand as effects from excise taxes fades.
In our view, a recovery in monthly wages will remain key to a rebound in alcohol demand.
While wage recovery remains tepid, we believe the situation could turn around as Thai farmers experiment with growing different types of crops to benefit from government subsidies.
Additionally, future income streams for Thai farmers could be further diversified from recent e-commerce initiatives.
In the coming quarters, we continue to expect a recovery in domestic alcohol consumption due to stronger consumer confidence and rising agriculture prices.
Risks to the view include persistent lacklustre demand in the domestic alcohol market, decline in market share in its key markets, and a surge in raw material prices.
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